It’s this logic that has given us such articles as, “Your Student Loan is Killing the Housing Market,” published last fall in USA Today, in which the author cites an estimate from a housing consultant which argued that student loan debt is costing the real estate industry more than 400,000 transactions per year to the tune of $83 billion in sales.

Couple such statistics with other anecdotal evidence like the story of Rachel Heffner, who would like to buy a home but is prevented from doing so by her $691 monthly payment on more than $60,000 in debt — detailed last year in an article in the Wall Street Journal, and it becomes a very convincing narrative.

The problem is, there isn’t any proof that higher student loan debt is actually causing young people to own homes at lower rates than they did in the past, or that the overall student loan burden is leading to a smaller share of first-time home buyers. These trends could be caused by other factors, such as a cultural shift that has led young adults to delay all sorts of decisions, from buying a home, to marrying and having children. Furthermore, the financial crisis caused widespread harm to every demographic group, causing drops in homeownership rates and credit scores across the board.

To test just how student loans are affecting the behavior of potential home buyers, researchers Jason Houle of Dartmouth College and Lawrence Berger of the University of Wisconsin drew on data from the National Longitudinal Study of Youth’s 1997 cohort, so that they could track a group of young people through their young adulthood to pinpoint, with other factors like socio-demographic factors (for instance, do you come from a wealthy family), to, as best they can, pinpoint the effects student loan debt specifically has on homeownership.

Houle and Berger, who published their results Monday with the support of the think tank, Third Way, write:

We do find evidence of a negative, statistically significant association between student loan debt and homeownership in some models, the association is substantively small to modest in size, and we find no evidence that the probability of home ownership decreases as the amount of student loan debt taken on by debtors increases. Thus, it seems unlikely that student loan debt is causing a generation of young adults to flee from the housing market; nor does it seem to be the case that student loan debt is primarily responsible for the slow post-recession housing market recovery. However, even if student loan debt isn’t reducing home buying, it may well be impacting young people’s well-being in other ways.

In other words, there is a slight (0.8%) decrease in probability for someone with student loans to own a home versus someone who has no loans at all. But the researchers weren’t able to find any evidence that someone with more student loans is statistically less likely to own a home than someone with a smaller burden. Why might this be?

The median student loan debt just isn’t that high — somewhere in the range of $15,000. That might come out to a monthly payment of $150 or so, not an amount that will make or break your ability to make a mortgage payment.

There is still a large, though declining wage premium between college graduates and non-graduates. That $150 per month that your median college graduate is making is going to be made up by the fact that a college graduate earns more.

That doesn’t mean that rising student loan debt shouldn’t be of concern for policy makers. The group that Houle and Berger studied are now in their late 20s, and it is possible that we’ll see their increased student loan burdens start to effect homeownership as this group continues to age. It’s also possible that as college gets more expensive and debt more burdensome, that the next cohort of graduates will be in worse condition than those today who are pushing 30.

That said, these results do tell us that the primary concern should not be that today’s graduates are over indebted. Rather, of bigger concern, as Third Way’s Senior Vice President for Policy, Jim Kessler, suggests, is the “dismal” graduation rates college students achieve overall. The group of students who go to school, perhaps borrowing money in the process, see all the downsides of debt with none of the benefits of a college degree. Only about 55% of students who start a degree finish within six years, “a completion rate that looks like a poorly performing high school,” Kessler says.

By all means, we should focus on ways to defray the cost of college and help students finish with less debt. But the real crisis in American secondary education is that too few people are getting a degree, not too many.

Here’s even more proof the housing market is back on track

Sales of newly constructed homes rose in May to an annual rate of 546,000, the Census Department announced Tuesday. That was up 2.2% from a month earlier, and the highest pace of new-home sales since February 2008.

Economists had expected the number to drop from April. The rise in new homes sales is only the latest news that the housing market — which many economists thought would disappoint again this year — is picking up steam.

The new Census data comes after The National Association of Realtors said Monday that existing home sales rose in May as well. hitting an annualized rate of 5.35 million. Excluding November 2009, when demand was bolstered by the expiration of a stimulus tax credit, that marked the fastest pace in nine years.

Still, the housing market rebound has a long way to go. As CalculatedRisk points out, even with the recent increase, the current pace of new home sales is still only on par with the pace of sales at the bottom of previous recessions. And we’re still well off the pace at the top of the last housing boom, which peaked at nearly 1.4 million new homes sales a year in mid-2005. But that, in retrospect, was clearly too high a figure.

Upsidedown America: share of seriously underwater homes rises for first time since 2012

According to real estate data firm RealtyTrac, the percentage of seriously underwater homes rose for the first time since the housing recovery began in earnest in 2012. RealtyTrac considers a seriously underwater home those where the owner owes more than 25% of the market value of the house.

The data underscores two big trends in real estate this year. One is that the housing recovery is losing steam, with CoreLogic data showing that home prices nationally rose just 5.6% year-over-year in February, after two years when home prices consistently showed double digit gains.

Second, it’s an indication that the real estate market is increasingly bifurcated into luxury markets and everything else. Macro trends like rising income inequality are creating increased demand for homes at the high end of the market and less demand for homes in less expensive neighborhoods.

Meanwhile, a lack of demand for homes at the bottom of the market is compounded by the fact that underwater homeowners are clustered in these very markets. These folks, who might have wanted to sell their homes to move for a job or a housing upgrade, are unable to leave their homes because they owe more than their property is worth. This creates a hole in demand for homes in less expensive neighborhoods.

Finally, with income growth remaining tepid, and home values generally at or near their pre-crisis peaks, there is no momentum for further, significant price increases. That means that markets with large shares of underwater homes are likely going to be dealing with the problem for many years to come. Here’s RealtyTrac’s list of the markets with the largest share of underwater homes:

Zillow CEO: Starbucks will boost your home’s value

Spencer Rascoff, CEO of Zillow Z, joined Fortune Live on Friday and spoke with host Leigh Gallagher about trends in the real estate market.

One fascinating tidbit from his conversation: Zillow home value data show that between 1997 and 2014, homes located within a quarter-mile of a Starbucks SBUXincreased in value by 96%, on average, compared with 65% for all U.S. homes.

If your home is close to a Dunkin’ Donuts DNKN, its price would have appreciated 80% over the same time period, Zillow found.

Why does the Starbucks phenomenon happen? According to Rascoff, it’s because of the gentrification effect Starbucks has on an area — it brings in similarly valued retailers.

Coffee chains aren’t the only factor boosting your home’s value, Rascoff said. It’s best to live on a court or a way, versus a boulevard or a street, he noted. You’ll also want those courts and ways to be named instead of numbered.

In one of the bigger acquisitions of 2014, Zillow purchased Trulia for $3.5 billion. The two companies created the market for online real estate listings and attract a combined total of well over 100 million visitors to their sites every month. Before these two firms were founded, there was no central depository for real estate data that the public could access, a dynamic that has made it difficult for the Average Joe to understand how the real estate market really works.

Now that the two companies are to become one, Zillow is an even more formidable force in the real estate industry, as well as a vital source for data on the housing market. On January 27th, the firm’s CEO, Spencer Rascoff, and Chief Economist, Stan Humphries, will publish The New Rules of Real Estate, a compendium of knowledge gleaned from the 3.2 terabytes of data processed by Zillow computers each day. The volume is loaded with secrets the average homebuyer or seller can benefit from, but here are the 13 we found most useful, or just plain entertaining.

How will cheap oil affect the housing market?

The collapse in the price of oil continues to make waves throughout the global economy and financial markets. In recent days, investors have fled to safer assets as markets attempt to parse the effects of cheap oil: Will lower capital spending by energy companies have unforeseen business consequences? Will cheaper fuel spark a wave of consumer spending?

Indeed, the potential effects of cheap oil appear limitless, with some analysts saying that the trend could even affect the price of housing. In a report released Thursday, Trulia Chief Economist Jed Kolko looked at the historical relationship between oil and home prices to see how the latter react during times when energy comes cheap. Writes Kolko:

Oil prices have plunged from over $100/barrel in July 2014 to around $50/barrel in early January 2015, threatening oil-producing economies around the world. Within the U.S., big oil price drops have historically been associated with job losses and falling home prices in energy-producing regions. In particular, plummeting oil prices in the 1980s were followed by declines in employment and home prices in Houston, Oklahoma City, Tulsa, New Orleans, and other nearby markets.

Kolko points out that while there was a correlation between oil-price declines and home-price declines in these cities during the 1980s, it usually takes up to two years for such a reaction to materialize. He argues that if cheap oil is here to stay, we should expect homes in markets with a high concentration of energy sector jobs to start showing price declines sometime in “late 2015 or 2016.”

So, which housing markets can we expect to be affected by cheap oil? Here are the top 10 areas ranked by the percentage of jobs in those regions tied to oil-related industries:

As you can see, home prices in many of these cities increased at a faster rate than the national average of 7.7%, suggesting that prices in those areas might be primed to decline if energy companies continue to struggle.

On the other hand, cheap oil could lead to higher home prices in much of the rest of the country. As Kolko writes, “Cheaper oil lowers the costs of driving, heating a home, and other activities, boosting local economies outside oil-producing regions. In the Northeast and Midwest especially, home prices tend to rise after oil prices fall.”

Homebuilders just got the best news in nearly a decade

The American economy lives by the housing market and dies by the housing market.

It was a subprime real estate bubble that plunged us into the worst recession in generations, and the lack of a housing comeback consigned the economy to a sluggish recovery.

But eight years after the market topped, it looks like the worst days are behind us. Prices have recovered to pre-bubble norms and, finally, it appears as if Americans are starting to form households much closer to the rate that they did before the crisis. Neil Dutta, head of economics at Renaissance Macro Research, pointed out in a note on Thursday to clients that household formation in 2014 through September is already at its highest rate since 2005:

This is big news because even though home prices have recovered strongly, the level of new housing construction has remained at recession-like levels:

Slowing population growth partly explains why the construction industry isn’t building as many homes as it did during previous recoveries, but much of the trend stems from the fact that the Millennial generation now coming of age doesn’t have the same economic opportunities as members of preceding generations. This has resulted in folks doubling up, either by living with friends or family, and low demand for new homes.

That’s why the news that household formation is springing back is so good. One can’t say for sure from the data whether the spike in new households is a result of improving economic conditions for Millennials, but there’s evidence that this is the case. As Dutta points out, the employment rate for folks aged 25 to 34 has grown 2.8% over the past year, about 29% faster than the overall employment rate.

The latest data dovetails nicely with a prediction from realtor.com’s Jonathan Smoke, which Fortune published earlier this week. He argued that 2015 would be the year that Millennials start making a big splash in the housing market, as they leave their parents homes and strike out on their own. It looks like that process may have already begun.

Why Fannie Mae and Freddie Mac should stop refinancing mortgages

As mortgage giants Fannie Mae and Freddie Mac near a deal that could lower barriers and restrictions on borrowers with weak credit, it’s hard not to wonder if Americans have learned anything from the 2008 financial crisis.When the nation’s housing market crashed, these companies owed the U.S. government $187 billion.Clearly, it had become far too easy for borrowers with bad credit to get approvals for mortgages and for families to borrow more than they could afford. Virtually everyone agreed that officials needed to fix this problem so that it never happened again. In a column for the National Post on July 12, 2008, David Frum, a former speechwriter for George W. Bush, cleverly summed up the sentiment at the time when he wrote:

“The shapers of the U. S. mortgage finance system hoped to achieve the security of government ownership, the integrity of local banking and the ingenuity of Wall Street. Instead, they got the ingenuity of government, the security of local banking and the integrity of Wall Street.”

Given such sentiment, few would have imagined that during the next six years Fannie Mae and Freddie Mac would continue to provide the vast preponderance of the new single family mortgages being issued in this country. Rather than wind down their role, while operating under conservatorship, their market share has increased and there have been few real changes to the housing finance system. In fact, the concept of “qualified mortgages” in the Dodd Frank bill, which was supposed to ensure that banks retain some of the risks for the mortgages they wrote, has now been watered down to the point where the only mortgages for which banks need to retain a risk position on their balance sheet are those where borrowers are paying more than 43% of their income. And once again, Fannie Mae and Freddie Mac are guaranteeing mortgages with as little as a 3.5% down payment.

We would like to propose, as have some others, that the Federal Housing Finance Agency, which oversees Freddie and Fannie, take a significant step and begin to get these companies out of the business of refinancing home mortgages. By doing so, the agency will reduce, over time, the $5.3 trillion they currently guarantee, focus on the home ownership and job creation sides of their activities and offer the private sector an attractive new market. According to the Department of Housing and Urban Development, over 50% of the single family mortgages these agencies purchased the last 15 years were to refinance existing mortgages.

What is the appropriate role for Fannie Mae and Freddie Mac? Some people say the mortgage market would behave better privatized than propped up by Fannie Mae and Freddie Mac. Others cite the fact that since these agencies control such a large share of the present mortgage market, it would be disastrous to phase them out.

A number of people have put forth thoughtful proposals for reforming the housing finance system, including the Bipartisan Housing Commission and its Mortgage Finance Reform Working Group. These proposals try to deal with fundamental flaws in our system such as the fact that the private sector continues to push virtually all of the risk onto U.S. taxpayers. However, because we are not in crisis and because Fannie Mae and Freddie Mac have repaid their loans and are operating profitably, serious efforts at reform are not gaining much traction.

Without taking sides in this debate, continuing to allow these agencies to make new loans to facilitate purchase of a person’s prime residence seems an idea that should be acceptable to both sides. As long as these agencies continue to exist, a good case can be made that helping people purchase homes serves a useful public purpose and helps create jobs. In this role, these agencies can also ensure that there is adequate capital and liquidity in the mortgage market.

In contrast, there is little public purpose in refinancing most home mortgages. Why should Fannie Mae, Freddie Mac and the U. S. taxpayer subsidize homeowners who want to lower the mortgage rate on their home from 5% to 4%? And why should they subsidize homeowners who want to pull money out of their house by taking on a bigger mortgage? It is noteworthy that, in a single quarter in 2006, borrowers pulled out $84 billion dollars of net equity in cash-out refinancings, some portion of which became part of the $187 billion bailout. By guaranteeing the mortgages in a refinancing, Fannie Mae and Freddie Mac are both subsidizing the homeowners and taking on greater risk.

Even with this relatively simple proposal, there are a number of issues that will require further discussion. For example, should Fannie Mae and Freddie Mac continue to finance second homes or refinance mortgages to enable borrowers to make significant home improvements? Should they guarantee loans that might help a homeowner avoid foreclosure?

While refinancing may have limited public purpose, it seems like an ideal product for the private market. Banks can still process these loans and then securitize them to institutional investors. We believe institutional investors would love a security backed by mortgages made to homeowners with stellar track records of on time payments, especially if this pool of mortgages offered a slightly higher rate than a Fannie Mae or Freddie Mac pool. If the rate or terms were too onerous, the homeowner could stay with the existing mortgage.

Will this proposal to phase Fannie Mae and Freddie Mac out of the business of refinancing home mortgages fully protect U.S. taxpayers? No. But it might significantly reduce the potential losses. By narrowing the scope of Fannie and Freddie’s activities, it will ensure that we are no longer responsible for borrowers who overleveraged through cash out refinancing. Ideally, as the private sector gets more involved in the mortgage refinancing market, it will set the stage for greater involvement in other areas of the housing finance market.

Few people believe that the current mortgage finance system is sustainable over the long run. And fewer still believe that the government has taken the steps necessary to protect the U.S. taxpayer from another bailout. While the next disaster may not be the same as the last one, we believe that action needs to be taken. As Mark Twain warns us, “History doesn’t repeat itself, but it does rhyme.”

John Vogel is an adjunct professor at the Tuck School of Business at Dartmouth College, where he teaches courses in real estate and entrepreneurship in the social sector. Bill Poorvu is an adjunct professor in entrepreneurship emeritus at Harvard Business School.

Close to retirement? Why America’s recovery is working against you

When the Federal Reserve Board released data from its 2013 Survey Consumer Finance (SCF), most of the attention focused on the growing gap between rich and poor. This survey of wealth showed that most of the country had seen little or no gain since the last survey in 2010, but the top 1% is doing quite well. The story is that the bounce back of the stock market from its recession trough meant big gains for the wealthy, since they own most shares of outstanding stock.

Meanwhile, home prices are still far below bubble peaks. Since houses are an asset that most families own, this means that the middle class have seen no comparable run-up in their wealth. Furthermore, continuing high rates of unemployment and weak wage growth have prevented most workers from adding to their savings.

This is a bad picture for the country as a whole, but it is especially bad news for those at the edge of retirement. These families do not have time for an economic turnaround to improve their situation. They must rely on the wealth they have accumulated to date to support them in retirement, and that is it. This is not a pretty picture.

The middle quintile of the cohort of workers between the ages of 55 to 65 had an average of just $169,000 in wealth in 2013. This is actually $19,000 below the average wealth for this group as reported in the 2010 SCF. (All numbers are in 2013 dollars). What’s more, it is $150,000 below the peak wealth for this group reported in the 2004 SCF. To give a basis for assessing the $169,000 difference, the median house price for the country as whole was $209,700 as of September.

This means that if a typical family in this 55 to 64 age group took all their wealth (which includes home equity) and used it to pay down their mortgage, they would still owe more than $50,000 on the median house. They would go into retirement with only their Social Security to support them, and a mortgage that is far from paid off.

The SCF supports this picture in its debt data. This middle quintile in the wealth distribution has only 54.6% of their home paid off on average. By comparison, in 1989, this group on average had equity equal to 81% of their house price, meaning that many could look forward to a retirement in which their mortgage was already paid off.

Going down to the second quintile, the situation looks far worse. The average wealth for this group is just $43,400. It had been almost $113,000 at its peak in 2007 and was $74,600 back in 1989, meaning that wealth for this group has declined by more than 40% over the last quarter century. Just over two-thirds of this group owns a house, with an average equity stake that is a bit more than 30% of the house price. This compares with a homeownership rate of more than 85% in 1989 and an average equity stake of more than 70%.

The average wealth for the bottom quintile is -$16,000, meaning that these people will be approaching retirement while still carrying debt. The homeowners from the group on average have negative equity, meaning they owe more than their house is worth.

Even the fourth quintile from this age group is not looking especially prosperous. Their average wealth is $470,000. That is down by almost 40% from the peak hit in 2004. The average equity stake for homeowners is 69.2%, down from 85.2% in 1989.

To put this $470,000 in perspective, if a couple used this money to pay off the mortgage on a median priced house, they would be able to buy an annuity that would pay them roughly $1,200 a month. This money, plus their Social Security, will keep them well above the poverty level, but it would hardly make for a comfortable retirement for households that are well above the median of the income distribution.

The basic story is that the vast majority of near retirees have managed to accumulate very little wealth. The collapse of the housing market bubble and the resulting economic downturn have been major blows from which they will not be able to recover before they retire. As a result they will be overwhelmingly dependent on Social Security and Medicare in their retirement years. Those who envision a population of affluent elderly who can easily get by with cuts in these programs are not looking at the data.

Dean Baker is a macroeconomist and co-director of the Center for Economic and Policy Research in Washington, DC. He previously worked as a senior economist at the Economic Policy Institute and an assistant professor at Bucknell University.

Home-building rebounds from steep summer drop

U.S. home construction grew 8.6% in September from the prior month, suggesting the housing recovery is continuing.

The Commerce Department said Friday housing starts climbed to 999,000 on a seasonally adjusted rate in September from 920,000 the prior month. Multi-family starts leapt 26%, while the increase was just 1% for single-family homes. Observers had projected housing starts would total 1.01 million in September, according to a survey conducted by Bloomberg.

Almost all of the growth in September came from structures with five or more units. Numbers for August were revised up slightly, but still showed a steep drop.

The housing sector’s recovery has been constrained by tight lending standards, which are especially problematic for potential Millennial home buyers that on average hold a lot of student debt. And in a sign that some are still worried about the strength of the housing market, builder confidence in the market for newly built single-family homes tumbled in October, ending a streak of four consecutive monthly gains.

“There are still a lot of headwinds for the ownership market,” said Gleb Nechayev, senior managing economist at CBRE Econometric Advisors.

Nechayev said as the labor market improves and wages begin to strengthen, there should be a pickup in the sale of single-family homes.

Home builders are also hopeful that pent-up demand will eventually lead to a sharper pickup in demand. Robert I. Toll, chairman of Toll Brothers TOL, last month said that the industry should be building 50% more homes this year than its current pace to meet the increased population demographics.

“At some point, this pent-up demand will be released, which will add momentum to the entire housing market,” Toll said.

Newly authorized building permits in September were at a seasonally adjusted annual rate of nearly 1.02 million, up just 1.5% from the prior month and slightly missing expectations.